Exel Ltd.'s buying spree came to a head yesterday when the company announced a takeover of Mid Ocean Ltd. for $2.1 billion in stock.

The joining of the two Bermuda-based reinsurers will create a powerhouse with $8 billion in market capital, making it one of the 20 largest US-listed property-casualty insurance companies.

Exel, which already holds 9.7 million shares or 27 percent of Mid Ocean, will be the holding company for the combined reinsurance operations which will operate as X.L. Mid Ocean Reinsurance Co. Ltd. Exel was a founding shareholder of Mid Ocean five years ago.

Exel will issue about 27 million shares to buy the remainder of Mid Ocean. The company will also repurchase $500 million of its shares, either prior to or after completion of the merger.

Exel president and chief executive officer Brian O'Hara said the merger would boost the combined companies into the top-tier of reinsurers and ensure their long term prospects. Over the past year Exel has acquired or purchased interests in a number of companies, using its capital to diversify globally (see table).

"We think it will help us retain the business we mutually have by having a stronger team and a stronger participation in many of the programmes that companies participate in,'' he said in an interview. He said the merger made good sense in a competitive market where premium rates were falling close to unprofitable levels. A reinsurer's size and ability to write bigger chunks of business were becoming an increasingly important factor in the marketplace.

The merged companies will have assets of about $9.1 billion.

"Even if market conditions don't change we can find synergy between the teams that can offer better approaches than we can currently respectively offer to the market,'' he said. "In time if there is any stabilisation in the market place, or indeed improvement, our future growth prospects will be stronger together than independently. With size being increasingly important, scale is necessary to compete. Consolidation is going on at an ever increasing rate.

There won't be any room at the table for small or medium sized companies.'' Mid Ocean chairman Bob Newhouse and president and chief executive officer Michael Butt will join Exel's board when the transaction is completed, expected to be sometime in June or July. They will act as consultants in developing Exel's global business.

"The world's insurance and reinsurance markets are all undergoing the same pressures for consolidation, scale, product diversity, and global reach,'' Mr.

Butt said at a press conference. "We in Bermuda -- to create winning companies -- have to do exactly the same. I think this concept, the implementation of this merger, will create a platform for Exel to be a real world winner on a long term basis.'' Mr. O'Hara said Mid Ocean's ownership of The Brockbank Group, a Lloyd's managing agency, was one avenue for boosting growth internationally. He also said Exel was looking to grow its business directly in North America, through a New York company it already owns, and by making more acquisitions. The company was going to pursue "middle market business'' through the acquisition of Folksamerica General Insurance Co., an already announced purchase which it was in the process of completing. The merger of the two companies would involve reorganisation. For example some of Mid Ocean's staff would be shifted to work in developing Exel's financial products. "Since the deal won't close until early July it gives us a fair amount of time to do the reorganisation in the best possible way,'' Mr. O'Hara said. "We don't need a rush to judgment.

In the due diligence process we identified some obvious choices to move certain talent from one company to another in different areas of operations.'' Exel has 155 staff in Bermuda and another 35 overseas. Mid Ocean has 45 staff in Bermuda and another 25 overseas. The company has another 1,000 employees at Brockbank including its direct marketing arm. Mr. O'Hara said it was still too early to determine how many layoffs might be necessary.

"We hope to build a very large tent which will fit as many people from both organisations,'' he said.

Exel had fiscal 1997 revenue of $1.2 billion and as at the end of February total assets of $6.4 billion and shareholders' equity of $2.7 billion. Mid Ocean had revenue of $619.4 billion in fiscal 1997. As of January 31 it had total assets of $2.45 billion and shareholders' equity of $1.41 billion. The merger will involve Exel swapping 1.0215 of its shares, or $72.70 at Friday's closing price, for each Mid Ocean share the company doesn't already own.

Exel shopping list Acquired GCR Holdings Ltd. (now XL Global Re); Acquired the business of Connecticut-based American Excess Insurance Association; Acquired Railroad Association Insurance Ltd.; Acquired a 75 percent stake created in Latin American Reinsurance Co Ltd; Acquired 20 percent stake in Lloyd's syndicate manager Venton Holdings Ltd.; Acquired 30 percent stake in investment management firm Pareto Partners; Acquired a stake in 45 percent interest in political risk specialist Sovereign Risk Insurance Ltd.; and In the process of completing the acquisition of Folksamerica General Insurnace Co. (formerly the Great Lakes American Reinsurance Co.) announced merger with Mid Ocean Ltd.